Banks and financial institutions in Italy and many other countries aredeveloping and enhancing methods to measure and manage the main riskinherent in their business operations: the credit risk of their loan portfolios.The specific direction that these efforts have taken is to draw on advances infinancial engineering and statistics to create computer simulations andanalytical methods. These techniques provide a more accurate measurementof risk, which can then be used in bank management (for example, todetermine more accurately the pricing of financial instruments and effectivecredit limits, or even appropriate allocations of capital) and in the regulatoryenvironment to determine capital charges.